Physical delivery for commodity futures?

Jul 11, 2005, 12.16am IST

Will boost economy & promote efficiency

D S Rawat, Secretary-General Assocham

All commodity futures contracts should be settled by delivery to ensure that no dispute arises out of commodities contracts among the stakeholders. Option trading should also be allowed so that farmers get higher margins for their produce and sustain themselves in this trade, which is projected to grow to over Rs 12 lakh crore by 2010. Option trading is prevalent worldwide and the same is introduced in India.

Deliveries should be made compulsory and mandatory on the outstanding positions of all future contracts that are about to expire. This will activate faster movements and bring about larger economic activities in commodity futures markets and also incorporate efficiency in the commodities trade, besides ensuring the growth of commodities in the changing era of cutthroat competition. The only reservation the chamber has on commodity futures contracts can be addressed by preventing hedgers from indulging in speculation for the purpose of profiteering. They should also be prevented from creating panic in commodities trading.

Our exhaustive study on commodities futures has advised the government that if deliveries are made a must, the size of commodity futures contract would grow even beyond the expected levels. We have also suggested that banks, mutual funds and FIIs should also be allowed to enter the commodities futures market and evening session needs to be made applicable in all commodities for any international linkages. Bullion, soyabean and its derivatives and cotton should also be allowed to be traded until midnight and all intermediaries involved in trading should be registered with their respective exchanges.